Turkiye Garanti Bankasi A.S.

Good afternoon and welcome to Guaranty BBVA's 2025 Financial Results and 2026 Operating Plan Guidance Webcast. Thank you for joining us today. Presenting on behalf of Guaranty BBVA, we have our CEO, Mr. Mahmut Aktan, our CFO, Mr. Atul Özüz, and our Head of Investor Relations, Ms. Ceyda Akıncı. Following the presentation, there will be a Q&A session. You may ask your questions either by using the raise hand function or by typing them into the Q&A box. With that, I now would like to hand over to management for their presentation.

Hello everyone and thank you for joining us. We are excited to be with you on another Earnings Call. Before getting into our financial performance details, let's as usual go over the broader macroeconomic environment. Turkish economy grew by 1% QoQ in the third quarter and for the fourth quarter, we now guessed a slightly positive quarterly growth. Therefore, parallel to our previous expectations, we maintain our GDP forecast as 3.7% in 2025 and 4% in 2026, consistent with still resilient activity outlook. In terms of inflation and monetary policy, Seasonally adjusted inflation improved into year-end. However, January CPI figure reinforces our view that the pace of monetary easing will become increasingly data-dependent and points to a slower pace of rate cuts compared to consensus. In this regard, we maintain our call of 25% inflation and 32% bullish rate for 26 year-end. In terms of current account deficit, it remains broadly manageable, although the trend has deteriorated, reflecting domestic demand dynamics and the gold channel. We expect current account deficit to GDP to be around 1.5-2% range. The outlook remains sensitive to Eurozone growth and Brent oil dynamics. In terms of budget deficit, we expect budget deficit to GDP to remain around 3.5%, led by tighter expenditures control and strong revenue generation. Now, moving into our financials, I will start with the headline figures. In 2025, once again, we delivered a strong track record of achieving results in line with our commitments. Our key P&M metrics came in fully consistent with our guidance, and cumulative net income reached 111 billion TL, corresponding to 21% year-over-year growth and 29% return on equity. In the fourth quarter, our bottom line was impacted by tax regulation-related effects. Excluding this one-off impact, our RE would have been around 30%, which was fully in line with our guidance. Despite operating with the lowest ratio, we continued to deliver an array above sector average. As always, we maintained our focus on capital generative growth, which is clearly reflected in our sector-leading common equity Tier 1 ratio. This earnings outperformance was once again driven by core banking revenues and with that let me move on to the page 7. We have now delivered growth in core banking revenues for eight consecutive quarters. In the fourth quarter, core banking revenues grew by 11% QonQ, driven mainly by higher net interest income, which was supported by a declining funding cost environment. Trading income declined QonQ. During the quarter, we repositioned our TL securities portfolio and we reduced our exposure to securities with relatively lower yields. Net fees also remained resilient, registered 5% quarterly growth with the increasing contribution from money transfer and lending-related fees. As a result, our core banking revenues reached 300 billion TL, which suggests the highest level among peers. A big part of this success stems from our asset mix, now moving into slide 8. Our asset growth continued to be fueled by higher yielding customer-driven sources, namely loans. Performing loans sharing assets further increased to 58% and lending growth was across the board. I will touch upon this on the next slide. In securities, I would like to highlight that we had a favorable securities mix with lower CPI and increased foreign currency share. During the year, we had strategic additions to foreign currency and TL fixed rate securities. Moving into slide 9, our TL zone portfolio reached 1.7 trillion TL. while we continued to maintain a well-balanced mix between consumer and business banking loans. In the fourth quarter, we sustained our quarterly growth pace of 10% in TL loans, bringing full-year growth to 45%, which is above our operating plan guidance. Throughout the year, we further strengthened our long-standing leadership in TR loans with market share gains across all retail products and SME loans. As we grow, we remain highly disciplined and continue to keep a close focus on asset quality. And with that, let's look at the evolution of our asset quality. In the third quarter, consumer and credit card related flow to stage 2 restructured and SICR portfolio continued, yet the share of stage 2 within gross loan remained flat at around 10%. Our stage 2 coverage ratio declined due to improved repayment performance of some individually assessed firms. While our Stage 2 loans coverage is now 9%, if we look at the TL and foreign currency breakdown, our foreign currency Stage 2 loans coverage remains healthy at 16%. In terms of NPR movements, our NPR ratio increased modestly to 3.1% in line with expectations, and we are witnessing the natural consequence of robust consumer and credit card growth that sector registered in the last couple years. Retail and credit card portfolios still accounted for 70% of net NPR flows. If we move on to the net cost of risk on page 12, net provisions increased in 4Q, reflecting the absence of exceptional provision reversals recorded in previous quarters. On a cumulative basis, cost of risk closed the year better than the guidance, with the impact of large-ticket provision reversals, which are not expected to repeat in this year, as I will explain in more detail on the guidance slide. Now moving on the other side of the balance sheet, how we are funding the balance sheet growth. Not only in assets but also in funding we rely on customer driven sources. Total customer deposits exceeded 3 trillion TL and now make up 69% of total assets and remain TL heavy. This quarter in TL deposits, we gained a notable market share and our TL deposit market share increased 21% among private peers. On foreign currency side, deposits increased by 4%, half of that growth was due to gold price increase related parity impact. The rest can be explained by the flow from maturing KKM deposits. Growing demand deposit base, which is one of the key pillar of our margin performance, continue to support deposit growth. Demand deposits currently make up 41% of total deposits. Our diversified and liquid funding mix is also backbone of our success. With two new transactions successfully completed in 2025, total volume of subordinated bond issuances over the past two years reached $2.5 billion, making us the bank with the largest subordinated bond issuance in the recent years. We achieved another major milestone by issuing Turkey's first biodiversity and polluting bond. We also secured a syndicated loan from international markets with diversified maturities. This year, we introduced a three-year tranche for the first time and a two-year tranche for the first time since 2017. Putting all these together, our total external debt currently stands at $9.8 billion, of which $3.5 billion is short-term. Against this, we maintain a comfortable and strong foreign currency liquidity buffer of $7.1 billion. Our active funding management is also visible in net interest income. On page 15, In the fourth quarter, our net interest margin recovered by 60 bps with the support of declining deposit costs. On an annual basis, net interest income including swap costs doubled, which points to 1.2% annual margin expansion. Our net interest margin reached 5.4%. We continue to have the by far the highest net interest margin and net interest income level among major peers, and our aim is to preserve this leading position. If we look at the margin components, as shown on bottom right side of the slide, TL core spread has started to recover as of 4Q, and we expect this recovery to continue throughout 2026. We utilized more swaps in 4Q due to its funding cost advantage relative to TL deposit costs. In terms of CPI increased income, CPI rate used in the valuation increased to 32.9% based on actual inflation data. Therefore, on a quarterly basis, we had positive contribution from CPI increased income. However, when looking at CPI linkers, we should also take into account its funding cost, and as of this quarter, we have started to share with you the net contribution of CPI linkers to net interest margin. In the fourth quarter, CPI linkers' negative contribution eased compared to 3Q due to increased income, On an annual basis, CPI increased net impact to margin was minus 0.4%. Let's move on to the other panel item, fees. Our fee base remains robust, up by 50% year-over-year. On an annual basis, payment system fees were the main driver of the growth. In the fourth quarter, contribution from lending-related fees and money transfer fees gained momentum. I would like to highlight that we are number one in money transfer fees and in both life and non-life insurance fees. We increased our mutual fund market share by 1.3% to 11.6%, which also provided additional support to our fee base. Moving to our operating expenses, our office space grew in line with our operating plan and was up by 67%. As we have been communicating, we have been investing in customer acquisition through salary promotions and to enhance customer experience and increase customer penetration, we have been leveraging the power of artificial support our revenue generation capability. As a result, significant portion of operating expense base is covered by fee income and we have the lowest cost income ratio. As per our capital strength, in the fourth quarter, our solvency ratios improved with support from strong profitability and tier 2 issuance we had in October. Our consolidated CT1 realized at 13.1%, capital adequacy ratio reached 17.5% without BRSA forbearance. The foreign currency sensitivity on capital remains limited, 13 bps negative for every 10% depreciation. With 179 billion TR excess capital, we maintain a solid buffer to support our long-term growth strategy. With that, let me now summarize our performance before moving into operating plan. As I mentioned in 25, we sustained our unmatched leadership in earnings generation capability and once again demonstrated a strong track record of achieving results in line with our commitments. Net interest margin performance and cost growth were broadly in line with our operating plan. while fee growth clearly stood out, driven by strong momentum in payment systems and lending-related fees. In fact, NTR loans are growth outpaced inflation, supported by consumer, credit cards, and SME loans. Net cost of risk performed well better than expectations, benefiting from provision reversals recorded during the year. Now, let me walk you through our operating plan guidance. I will begin with macro assumptions on the left as these form the foundation of our planning framework. Our baseline assumes a gradual easing cycle in the policy rate. The pace of monetary easing will become increasingly data dependent and points to a slower pace of rate cuts in the second half of the year. Inflation will continue to decelerate, closing the year at around 25%. However, given the stickiness in services inflation, we believe CBRT will maintain a sufficiently tight stance, implying exposed real policy rate of around 6-7 percentage points. Turning to balance sheet growth, on the right-hand side, we expect TL loan growth to be in the range of 30-35%. Foreign currency loan growth at mid-single-digit levels. Net cost of risk is expected to normalize, settling in the 2% to 2.5% range, reflecting the absence of large-ticket provision reversals and the natural impact of strong growth in consumer and credit cards. Regarding margins, we project net interest margin expansion of around 75 basis points on top of its highest level. I would like to highlight that the extent of this improvement will largely depend on the pace of rate cuts and the evolution of macroprudential measures. As I mentioned earlier, our assumption of 32% year-end policy rate represents the upper end of market expectations. We deliberately adopted a conservative approach during the budgeting process in order to prepare the budget balance sheet for funding costs remaining above policy rates, particularly on deposit side. On fees, we expect growth of 30-35%. As a result of strategic investments, we expect OPEC's growth to exceed average inflation. That said, on a bank-only basis, we expect around 80-85% of the OPEC space to be covered by fee income. Finally, bringing all these elements together, we are targeting mid-single-digit positive real ROE. Since 2018, real ROE has remained negative. However, in 2026, we expect this to turn positive, supported by declining policy rate. This concludes my presentation. Thank you for your listening. Now we can take your questions.

Welcome back to the Q&A session. You may submit your questions via the Q&A box or raise your hand to speak directly. Once your name is announced, please unmute yourself and go ahead with your question. One moment for the first question. Our first question comes from David Taranto, Bank of America. David, please go ahead and unmute yourself and ask your question.